Crypto Lending Platform Morpho V2 Brings DeFi Closer to Traditional Finance

Morpho, a permissionless cryptocurrency lending protocol, unveiled an update that seeks to further align decentralized finance (DeFi) with traditional lending by bringing more in the way of bespoke, predictable loan terms.

Morpho V2 delivers market-driven fixed-rate, fixed-term loans with customizable terms, features previously unseen in DeFi, which are required to meet the demands of institutions and enterprises looking to build or migrate financial products on-chain, Morpho said in a press release on Thursday.

DeFi, a blockchain-based and automated system of lending and borrowing on-chain assets, is set to surge this year, just as it did in 2021, particularly because of the involvement of institutional finance and real-world assets (RWAs).

But DeFi infrastructure needs to surpass certain on-chain confines such as a reliance on over-collateralization and fixed formulas for calculating rates in order to scale to institutional-grade potential.

"With Morpho V2, we wanted to move beyond the rigid, pool-based structures that dominate DeFi today where users have little control over rates or terms,” Morpho Labs CEO Paul Frambot said in an email. “V2 introduces an intent-based model where lenders and borrowers express exactly what they want, like fixed-rate, fixed-term loans, specific collateral preferences etc., and the system finds the best match.”

Whereas the previous version of Morpho limited loans to single collateral types, V2 supports single assets, multiple assets, or entire portfolios as collateral, including RWAs and niche assets, according to a press release.

“This level of precision and flexibility is what’s needed to serve both sophisticated DeFi users and institutions looking for predictable, customizable loans on-chain,” Frambot said. “V2 unlocks the potential of on-chain lending by introducing an open market where users are the ones to decide if a loan should be issued, not the protocol.”

The upgrade also goes further with compliance, including enhanced know-your-customer (KYC) and whitelisting, but without altering the platform’s open source, permissionless, and non-custodial attributes, the release said.

Morpho V2 will be rolled out in the coming weeks, a representative for the firm said in an email.